Has the Great Bond Market Breakdown Arrived?

Next to betting against Apple (NASDAQ: AAPL), the argument that bond prices were headed significantly lower has been a difficult argument to wage over the past several weeks and months. But does the plunge of more than 2% in the iShares Barclays 20+ Year Treasury Bond Fund (NYSE: TLT) suggest that sellers might finally have the upper hand?

During the extended, rangebound trading in bond ETFs like TLT – a range that extends back to late September of 2011 – there were a number of opportunities for bond bears to send out the alarm. However, these sell-offs in TLT – and for that matter in the Vanguard Total Bond Market ETF (NYSE: BND) and the iShares Barclays Aggregate Bond Fund (NYSE: AGG), as well – proved to be little more than buying opportunities for traders and active investors looking to take advantage of short-term weakness in these markets.

Consider this: most recently in the TLT, a pullback that took the ETF lower for five out of six trading days was met immediately by a rally that sent shares higher more than 3% over the next four sessions. A three-day setback at the beginning of January in the AGG served as the catalyst for a rally that brought the fund to what were then new, multi-month highs.

Heading into trading on Monday, all three of the funds mentioned – TLT, AGG, and BND – have closed in oversold territory above the 200-day moving average, though it is the iShares Barclays 20+ Year Treasury Bond Fund that has dropped for three days in a row (including Friday’s sell-off). As such, TLT is significantly more oversold and has a positive edge that is nearly three times that of AGG.

Also selling off on Friday was the iShares Barclays TIPS Bond Fund ETF (NYSE: TIP). TIP closed down by more than three quarters of a percent, finishing in technically oversold territory.

One area of the bond market where selling has not been dominant has been the high-yield bond market where ETFs like the SPDR Barclays High Yield Bond ETF (NYSE: JNK) and the iShares IBoxx High Yield Corporate Bond ETF (NYSE: HYG) edged higher at week’s end. Both JNK and HYG are trading in bull market territory, having climbed back above their 200-day moving averages in the second half of January and December, respectively.

Be sure to read our latest column from 7 Stocks You Need to Know: Trading a Double Shot of Peet’s Coffee and Tea.

David Penn is Editor in Chief of TradingMarkets.com.